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News release

BOSTON, MA

JLL’s Greater Boston Life Sciences Outlook Study Reports That Mid-tier Biotech and Specialty Pharmaceuticals Drive Demand


BOSTON, MA, May 16 2014 – Across North America, activity and demand in the life sciences industry has shifted from one driven by Big Pharmas, to one where mid-tier companies and specialty players are experiencing exponential overnight growth.

Opportunity exists to retrofit and parcel large campuses to meet the growing needs of mid-tier and specialty companies, particularly in the Boston market. JLL’s Greater Boston Life Sciences Outlook highlights the unique opportunity based on the area’s continued dominance with its extensive university networks, deep labor pools, and high concentration of leading life science companies.

Greater Boston benefits from global realignment, remaining the only cluster with all factors for industry success: strong economics, a growing labor force, leading universities, expanding innovation centers, research hospitals, venture capital firms, start-ups and mature corporations. Specifically outlined in the Outlook report is Greater Boston’s capacity to provide the high quality infrastructure and facilities required for industry growth.

JLL Research’s regional economic scorecard for 2013 shows that there are 81,831 employees in the pharmaceutical, biotechnology and medical device industry sub-sectors which is an increase of 1.5 percent year-over-year. The area trails only San Diego on a percent of total workforce basis. Greater Boston is one of the country’s leading recipients of venture capital and National Institute of Health (NIH) funding at $1.37 billion and $2.01 billion respectively. The number of life sciences patents here stands at 1,412, or 31.1 percent of all patent classes.

“A growing focus on testing consistency and reliability in the local research environment has resulted in an influx of regulated space requirements,” said JLL Vice President and life sciences expert Don Domoretsky. “These GXP facilities need to meet quality control guidelines and guaranty procedural integrity which results in capital intensive infrastructure. Classified environments are well suited for the suburban landscape, a largely single story market which improves operational efficiency and reduces cost of construction. Locating in the suburbs enables firms to realize savings that can then be reinvested into research.” 

“Impact 2020, MassBio’s recent industry strategic report, laid out the opportunity for continued growth in life sciences in Massachusetts, including potential to build downstream capacity in biomanufacturing,” said Peter Abair, Director of Economic Development & Global Affairs at MassBio, the state’s trade association for life sciences. “We are excited to see JLL’s report outline the capacity the region has to support an evolving drug development model.” MassBio was a source for Jones Lang LaSalle on this report.

Cambridge
Cambridge, according to the JLL report, is a global anchor for the life sciences industry. It is one of the most competitive and resilient markets in the nation. Its advantage is the concentration major academic institutions, centers of excellence, venture capital firms, start-ups and global companies all within minutes of each other.

East Cambridge is home to 87.4 percent of the city’s lab space. In 2013 the submarket recorded nearly 800,000 square feet of positive absorption. Over 850,000 square feet of new lab space development delivered in the second half of last year alone, all of which is fully leased or committed today. With another 1.8 million square feet under construction, East Cambridge lab and office supply levels will soon be equal for the first time ever.

According to Domoretsky: “With the recent relocation of Vertex leaving large blocks of available lab space vacant, lab rents have remained flat year over year in East Cambridge. In some instances, pressure from the red-hot office market is enticing lab landlords to accommodate the office users – this being a less capital intensive proposition.”

“In East Cambridge,” he continued, “’Class A’ lab product is scarce, especially in the 18-25,000 square foot range.  ‘Class B’ second generation lab space and ground-up construction are left to meet demand. These limited options are creating quality, efficiency and timing issues for prospective tenants and pushing some outside the East Cambridge market.”

West Cambridge acts as a natural extension of the East Cambridge life sciences sector and continues to develop its own identity. The area has more of a suburban campus-like feel. There is plenty of leasable space here as Pfizer sold its three-building portfolio and is consolidating to East Cambridge.

“Life Science tenants’ immediate need for space, and their ability to capitalize on savings opportunities, continues to push requirements from Cambridge into sub-cluster options,” said Domoretsky. “As early to mid-stage funding declines, tenants are competing for economic alternatives. Also, downtime is not an option if you are focused on manufacturing or commercializing product at later stages of development. Timing and cost constraints are the key factors contributing to the evolution of suburban lab markets.”

Boston
While supply in Cambridge is very tight, a number of life sciences firms are pursuing Boston for build-to-suit opportunities and office-to-lab conversions. Many users have been drawn to the Seaport District because of its proximity to downtown, and the rental savings here in contrast to surrounding hubs such as Cambridge.

The Seaport is the only CBD submarket with a significant landscape to accommodate for future development. Vertex was the first big name to sign here as the company moved into 1.1 million square feet in two buildings at the heart of the Fan Pier master plan development. The two buildings recently sold to Senior Housing Properties for over $1,000 psf, a high watermark for the area.

The Longwood Medical and Academic Area (LMA) is a world-renowned medical and research community dominated by the healthcare industry. As a result, it has attracted a number of pharmaceutical and lab-using companies to the area. While the LMA is home to an existing 18.1 million square feet, the majority of buildings are institutionally owned and there is limited lab space available in this market. To alleviate the excess demand for leasable lab space here, further construction is under way.


Suburbs
Developers and tenants have recognized that the suburbs provide an important value option.

“In Q1 2014, Life Science tenant demand in suburban clusters is up 30% from last year,” Domoretsky said. “Mid-tier target size tenants continue to drive the market with the majority of demand coming from 20-to-50,000 square foot users. Suburban 128 markets have been the beneficiary, with evident pockets of growth in Waltham, Lexington, and Bedford to Woburn.” 

The majority of lab space along the 128/Mass Pike submarket is in Watertown and Waltham. Watertown serves as an extension of West Cambridge, with an average asking rent of $27.67 psf NNN. This is a 37.3 percent discount compared to West Cambridge. Waltham is home to both mid-tier and global companies, attracting firms to its amenities and access via Route 128.
“Waltham is receiving a lot of attention,” said Domoretsky.

“Alexandria purchased 225 Second Ave from Marcus Partners with the intention of converting the building to top tier lab space for Forum Pharmaceuticals. In addition, King Street Properties’ Bear Hill Research Portfolio, a 225,000-square-foot lab /office park, and Marcus Partners’ 180,000-square-foot lab/office building at 852 Winter Street, are both listed on the market for sale.” 

In the Northwest suburban submarket, the Lexington/Bedford area is arguably the most active life sciences market in the suburbs. With an average asking rent of $27.55 psf NNN, it is the most expensive submarket in the suburbs. Asking rents grew by 8.7 percent here last year.

Demand is spilling out of Lexington and Bedford into Woburn and Beverly in the North submarket, where Cummings Properties has developed a critical mass of lab supply. Asking rents are significantly discounted at $18.56 psf NNN. Rents do, however, vary across this market as Woburn’s average is $24.59 NNN and Beverly stands at $12.00 NNN.

Today the Route 128 lab markets have a combined vacancy of approximately 400,000 square feet of immediate viable research product. “We have approximately 700,000 square feet of active tenant demand there,” concluded Domoretsky. “As a result, rents are being pushed. We are receiving proposals in the $35.00-$38.00 NNN range in a historically low $30-$34.00 market, closing the gap between West Cambridge and the suburbs.” 

The full JLL Life Sciences Outlook report presents a deep dive into 15 different North America markets. To download a copy of the full report, click here.

About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4 billion, JLL has more than 200 corporate offices and operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3 billion square feet and completed $99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $48.0 billion of real estate assets under management. For further information, visit www.jll.com. ​